PREIT Reports Second Quarter 2016 Results and Raises Mid-Point of Guidance
FFO, as adjusted per share increased 10.3% for the quarter
Earnings Per Share increased $0.57 for the quarter
Renewal Spreads were 13.4% for the quarter and 17% YTD
Sales PSF grow by 9.6% to $458
Philadelphia, PA, July 26, 2016 – PREIT (NYSE: PEI) today reported results for the quarter and six months ended June 30, 2016.
- FFO, as adjusted per share increased by 10.3% for the quarter to $0.43 and 7.6% to $0.85 for the six month period ended June 30, 2016 compared to the prior year period.
- Net income available to PREIT common shareholders was $4.2 million for the quarter and $2.0 million for the six month period ended June 30, 2016 compared to losses attributable to PREIT common shareholders of $34.9 million and $52.4 million for the respective prior periods.
- Earnings per share was $0.06 for the quarter and $0.03 for the six month period ended June 30, 2016 compared to losses per share of $0.51 and $0.76 for the respective prior periods.
- Same Store NOI excluding lease terminations improved by 4.0% for the quarter and by an average of 4.0% for the first two quarters ended June 30, 2016 as compared to the prior year period.
- Same Store NOI improved by 3.9% for the quarter and by an average of 3.9% for the first two quarters ended June 30, 2016 as compared to the prior year period.
- Average gross rent per square foot at Premier and Core Growth Malls grew by 3.9%
- Agreements of sale executed with non-refundable deposits for Washington Crown Center and an office building in Voorhees, NJ.
- Sale of downtown Philadelphia street retail properties completed during the quarter for a gain of $20.3 million.
- Non-anchor leased space for malls excluding those held for sale was 94.3%, a 300 basis point improvement over current occupancy.
- Comparable store sales across the portfolio were $458 compared to $418 in the prior period with sales growth most pronounced in the Company’s Core Growth malls, where most of its recent remerchandising initiatives have been focused.
- Balance Sheet flexibility improved with amended Term Loan reducing rates and expanding borrowing capacity by $150.0 million.
- Renewal spreads for tenants under 10,000 square feet were 13.4% for the quarter and 17.0% for the six month period ended June 30, 2016.
- Renewal spreads for all non-anchor tenants, on a cash basis, were 8.6% for the quarter and 9.1% for the six month period ended June 30, 2016.
- Primark opened its second Philadelphia-area store at Willow Grove Park.
We have established a pattern of execution and are confident that our reshaped portfolio will continue to produce strong quarterly results,” said Joseph F. Coradino, Chief Executive Officer. “The formula is simple: a leasing pipeline driven by robust demand for quality space, strong renewal spreads that exceed our historical results, margin improvement resulting from a focus on common area revenue growth as well as quality redevelopment projects generating yields of 8 to 10%, which lead to continued NOI and NAV growth.
The following tables set forth information regarding net income (loss), net income available (loss attributable) to PREIT common shareholders and net earnings (loss) per diluted share for the quarter and six months ended June 30, 2016 and 2015:
| Quarter Ended June 30, | Six Months Ended June 30, | ||||
| (In millions, except per share amounts) |
2016 | 2015 | 2016 | 2015 | |
| Net income (loss) | $9.2 | ($34.7) | $11.1 | ($48.6) | |
| Net income available (loss attributable)to PREIT common shareholders |
$4.2 | ($34.9) | $2.0 | ($52.4) | |
| Net earnings (loss) per share – basic and diluted |
$0.06 | ($0.51) | $0.03 | ($0.76) | |
The following tables set forth information regarding Funds From Operations (“FFO”) and FFO, as adjusted for the quarter and six months ended June 30, 2016 and 2015:
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||
| (In millions) | 2016 | 2015 | 2016 | 2015 | |||
| FFO | $ 32.3 | $ 29.3 | $ 64.7 | $ 53.7 | |||
| Mortgage prepayment penalty and accelerated amortization of deferred financing costs |
— | 1.0 | — | 1.0 | |||
| Acquisition costs | — | 0.1 | — | 3.5 | |||
| Provision for employee separation expense |
0.7 | — | 1.2 | — | |||
| Loss on hedge ineffectiveness | — | — | 0.1 | 0.5 | |||
| FFO, as adjusted | $ 33.0 | $ 30.5 | $ 66.0 | $ 58.7 | |||
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| Quarter Ended June 30, | Six Months Ended June 30, | ||||||
| Per Diluted Share and OP Unit | 2016 | 2015 | 2016 | 2015 | |||
| FFO | $ 0.42 | $ 0.38 | $ 0.83 | $ 0.72 | |||
| FFO, as adjusted | $ 0.43 | $ 0.39 | $ 0.85 | $ 0.79 | |||
A description of each non-GAAP financial measure and the related reconciliation to the comparable GAAP measure are located at the end of this press release.
Primary Factors Affecting Financial Results for the Quarter Ended June 30, 2016:
- Net income available to PREIT common shareholders was $4.2 million, or $0.06 per share compared to Net loss attributable to PREIT common shareholders of $34.9 million, or $0.51 per share for the quarter ended June 30, 2015.
- Same Store NOI increased by $2.4 million to $62.3 million, primarily driven by an incremental $1.5 million increase from Springfield Town Center that is now included in our quarterly Same Store results.
- Non Same Store NOI decreased $4.3 million including a $6.2 million decrease from properties sold in 2015 and 2016, partially offset by the opening of Gloucester Premium Outlets in August 2015.
- Gains on sales of interests on real estate were $20.9 million due to the sales of the Walnut and Chestnut Street retail properties and an operating parcel located at Monroe Retail Center.
- FFO, as adjusted, for the quarter was $0.43 per share and OP Unit, compared to $0.39 per share and OP Unit in the prior year. Dilution from assets sold in 2015 and 2016 was approximately $0.06 per share.
- Impairment of assets of $14.1 million was recognized on Washington Crown Center in the quarter ended June 30, 2016 as compared to $28.7 million recognized on Gadsden Mall, New River Valley Mall, and Wiregrass Commons Mall in the quarter ended June 30, 2015.
Primary Factors Affecting Financial Results for the Six Months Ended June 30, 2016:
- Net income available to PREIT common shareholders was $2.0 million, or $0.03 per share, compared to loss attributable to PREIT common shareholders of $52.4 million, or $0.76 per share, for the six months ended June 30, 2015.
- Same Store NOI increased $2.7 million to $115.2 million, primarily due to rent increases and new store openings. Same Store NOI for the six month period excludes Springfield Town Center.
- Non Same Store NOI decreased $1.0 million including a $8.9 million decrease from properties sold in 2015 and 2016, offset by an incremental $7.0 million aggregate increase from Springfield Town Center and Gloucester Premium Outlets.
- Gains on sales of interests in real estate were $22.9 million primarily due to the sale of the Walnut and Chestnut Street retail properties and two operating parcels.
- Activist shareholder defense costs were $1.5 million for the six months ended June 30, 2015, and did not recur in 2016.
- FFO, as adjusted, for the six months ended June 30, 2016 was $0.85 per share, compared to $0.79 in the prior year. Dilution from assets sold in 2015 and 2016 was approximately $0.09 per share.
- Impairment of assets of $14.1 million was recognized on Washington Crown Center in the quarter ended June 30, 2016 as compared to $34.9 million that was recognized on Uniontown, Gadsden, New River Valley and Wiregrass Commons Malls in the six months ended June 30, 2015.
All amounts referenced as primary factors affecting financial results above include PREIT’s proportionate share of partnership revenues and expenses.
Financing Activities
In June 2016, the Company amended its 2015 7-Year Term Loan, which increased the potential borrowing from $100.0 million to $250.0 million, reduced interest rate spreads and extended the maturity date to December 29, 2021.
Asset Dispositions
In June and July 2016, the Company entered into agreements of sale for the office building it retained in Voorhees, NJ and Washington Crown Center in Washington, PA, respectively.
During the quarter, the Company sold two downtown Philadelphia street retail properties and a parcel the Company had retained at Monroe Marketplace in Selinsgrove, PA.
Retail Operations
The following tables set forth information regarding sales per square foot and occupancy in the Company’s portfolio, including properties owned by partnerships in which the Company owns a non-controlling interest:
| Rolling Twelve Months Ended: | ||
| June 30, 2016 | June 30, 2015 | |
| Portfolio Sales per square foot (1) | $458 | $ 418 |
|
(1) Based on reported sales by all comparable |
||
A reconciliation of portfolio sales per square foot can be found below:
| June 30, 2015 | $418 |
| Organic sales growth | 13 |
| Asset sales | 25 |
| Springfield Town Center | 2 |
| June 30, 2016 Sales | $458 |
| Leased as of: | Occupancy as of: | ||||
| June 30, 2016 | June 30, 2016 | June 30, 2015 | |||
| Same Store Malls: | |||||
| Total including anchors | 96.1% | 94.2% | 94.4% | ||
| Total excluding anchors | 93.7% | 90.9% | 91.4% | ||
| Portfolio Total Occupancy: | |||||
| Total including anchors | 95.9% | 94.0% | 93.4% | ||
| Total excluding anchors | 93.8% | 91.1% | 90.0% | ||
2016 Outlook
The Company has revised its previous estimates of net income attributable to PREIT common shareholders, FFO and FFO as adjusted, each on a per share basis, for the year ending December 31, 2016. The changes give consideration to the Company’s results of operations for the first six months of the year, completed and planned dispositions of assets, completed financing transactions and management’s outlook for the balance of the year.
| Estimates Per Diluted Share | Lower End | Upper End |
| Net income attributable to PREIT common shareholders |
$0.13 | $0.17 |
| Depreciation and amortization (includes the Company’s proportionate share of unconsolidated properties), non-controlling interest and other adjustments |
1.79 | 1.79 |
| Impairment of assets | 0.19 | 0.19 |
| Gain on sale of interests in real estate | (0.29) | (0.29) |
| FFO | 1.82 | 1.86 |
| Provison for employee separation expense and hedge ineffectiveness |
0.02 | 0.01 |
| FFO, as adjusted | $ 1.84 | $ 1.87 |
Our 2016 guidance is based on our current assumptions and expectations about market conditions, and our projections regarding occupancy, retail sales and rental rates, and planned capital spending. Our guidance is forward-looking, and is subject to risks, uncertainties and changes in circumstances that might cause future events, achievements or results to differ materially from those expressed or implied by the forward-looking statements.
Our revised guidance incorporates the following assumptions, among others:
- 2016 Same Store NOI growth of 2.8% to 3.2% remains unchanged for properties in the portfolio for all of 2015 and 2016;
- Average quarterly Same Store NOI growth is expected to be 4.0% to 4.4%;
- Sale of Washington Crown Center and an office building property at Voorhees Town Center in the third quarter;
- Additional asset sales, if any, would not occur before the end of 2016;
- No additional financing activity; and
- No acquisitions.
Conference Call Information
Management has scheduled a conference call for 11:00 a.m. Eastern Time on Wednesday,
July 27, 2016, to review the Company’s results and future outlook. To listen to the call, please dial 1-888-346-8835 (domestic toll free), 1-412-902-4271 (international), or 1-855-669-9657 (Canada toll free) and request to join the PREIT call at least five minutes before the scheduled start time. Investors can also access the call in a “listen only” mode via the internet at the Company’s website, preit.com. Please allow extra time prior to the call to visit the site and download the necessary software to listen to the Internet broadcast. Financial and statistical information expected to be discussed on the call will also be available on the Company’s website. For best results when listening to the webcast, the Company recommends using Flash Player.
For interested individuals unable to join the conference call, a replay of the call will be available through August 17, 2016 at 1-877-344-7529 (domestic toll free), 1-412-317-0088 (international), or 855-669-9658 (Canada toll free) using the replay code, 10087364. The online archive of the webcast will also be available for 14 days following the call.
About PREIT
PREIT (NYSE:PEI) is a publicly traded real estate investment trust specializing in the ownership and management of differentiated shopping malls. Headquartered in Philadelphia, Pa., the company owns and operates over 25 million square feet of retail space in the eastern half of the United States with concentration in the Mid-Atlantic region’s top MSAs. Since 2012, the company has driven a transformation guided by an emphasis on balance sheet strength, high-quality merchandising and disciplined capital expenditures. Additional information is available at www.preit.com or on Twitter or LinkedIn.
Rounding
Certain summarized information in the tables above may not total due to rounding.
Definitions of Non-GAAP Measures
Funds From Operations
The National Association of Real Estate Investment Trusts (“NAREIT”) defines Funds From Operations (“FFO”), which is a non-GAAP measure commonly used by REITs, as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization; and after adjustments for unconsolidated partnerships and joint ventures to reflect funds from operations on the same basis. We compute FFO in accordance with standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently than we do. NAREIT’s established guidance provides that excluding impairment write downs of depreciable real estate is consistent with the NAREIT definition.
FFO is a commonly used measure of operating performance and profitability among REITs. We use FFO and FFO per diluted share and unit of limited partnership interest in our operating partnership (“OP Unit”) in measuring our performance against our peers and as one of the performance measures for determining incentive compensation amounts earned under certain of our performance based executive compensation programs. FFO does not include gains and losses on sales of operating real estate assets or impairment write downs of depreciable real estate, which are included in the determination of net income in accordance with GAAP. Accordingly, FFO is not a comprehensive measure of our operating cash flows. In addition, since FFO does not include depreciation on real estate assets, FFO may not be a useful performance measure when comparing our operating performance to that of other non-real estate commercial enterprises. We compensate for these limitations by using FFO in conjunction with other GAAP financial performance measures, such as net income and net cash provided by operating activities, and other non-GAAP financial performance measures, such as NOI. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that net income is the most directly comparable GAAP measurement to FFO.
We also present Funds From Operations, as adjusted, and Funds From Operations per diluted share and OP Unit, as adjusted, which are non-GAAP measures, for the three and six months ended June 30, 2016 and 2015, respectively, to show the effect of acquisition costs, provision for employee separation expense, mortgage prepayment penalty and accelerated amortization of financing costs and loss on hedge ineffectiveness, which had a significant effect on our results of operations in certain periods, but are not, in our opinion, indicative of our operating performance.
We believe that FFO is helpful to management and investors as a measure of operating performance because it excludes various items included in net income that do not relate to or are not indicative of operating performance, such as gains on sales of operating real estate and depreciation and amortization of real estate, among others. We believe that Funds From Operations, as adjusted, is helpful to management and investors as a measure of operating performance because it adjusts FFO to exclude items that management does not believe are indicative of its operating performance, such as provision for employee separation expense, accelerated amortization of deferred financing costs and gain and loss on hedge ineffectiveness.
Net Operating Income (“NOI”)
NOI (a non-GAAP measure) is derived from real estate revenue (determined in accordance with GAAP, including lease termination revenue) minus operating expenses (determined in accordance with GAAP), plus our share of revenue and operating expenses of our partnership investments, and includes real estate revenue and operating expenses from properties included in discontinued operations, if any. It does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity. It is not indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that NOI is helpful to management and investors as a measure of operating performance because it is an indicator of the return on property investment, and provides a method of comparing property performance over time. We believe that net income is the most directly comparable GAAP measurement to NOI.
NOI excludes interest and other income, general and administrative expenses, provision for employee separation expense, interest expense, depreciation and amortization, gains on sales of interests in real estate, gains on sales of non-operating real estate, gains on sales of discontinued operations, impairment losses, acquisition costs and other expenses.
Same Store NOI
Same Store NOI is calculated using retail properties owned for the full periods presented and exclude properties acquired or disposed of.
Forward Looking Statements
This press release, together with other statements and information publicly disseminated by us, contain certain “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans, strategies, anticipated events, trends and other matters that are not historical facts. These forward-looking statements reflect our current views about future events, achievements or results and are subject to risks, uncertainties and changes in circumstances that might cause future events, achievements or results to differ materially from those expressed or implied by the forward-looking statements. In particular, our business might be materially and adversely affected by uncertainties affecting real estate businesses generally as well as the following, among other factors:
Changes in the retail industry, including consolidation and store closings, particularly among anchor tenants; our ability to maintain and increase property occupancy, sales and rental rates, in light of the relatively high number of leases that have expired or are expiring in the next two years; increases in operating costs that cannot be passed on to tenants; current economic conditions and the state of employment growth and consumer confidence and spending, and the corresponding effects on tenant business performance, prospects, solvency and leasing decisions and on our cash flows, and the value and potential impairment of our properties; our ability to sell properties that we seek to dispose of or our ability to obtain estimated sale prices; potential losses on impairment of certain long-lived assets, such as real estate, or of intangible assets, such as goodwill, including such losses that we might be required to record in connection with any dispositions of assets; risks relating to development and redevelopment activities; our ability to identify and execute on suitable acquisition opportunities and to integrate acquired properties into our portfolio; our partnerships and joint ventures with third parties to acquire or develop properties; concentration of our properties in the Mid-Atlantic region; changes in local market conditions, such as the supply of or demand for retail space, or other competitive factors; changes to our corporate management team and any resulting modifications to our business strategies; the effects of online shopping and other uses of technology on our retail tenants; acts of violence at malls, including our properties, or at other similar spaces, and the potential effect on traffic and sales; our substantial debt and stated value of preferred shares and our high leverage ratio; constraining leverage, unencumbered debt yield, interest and tangible net worth covenants under our Credit Agreements; our ability to refinance our existing indebtedness when it matures, on favorable terms or at all; our ability to raise capital, including through the issuance of equity or equity-related securities if market conditions are favorable, through joint ventures or other partnerships, through sales of properties or interests in properties, or through other actions; our short and long-term liquidity position; potential dilution from any capital raising transactions or other equity issuances; and general economic, financial and political conditions, including credit and capital market conditions, changes in interest rates or unemployment.
Additional factors that might cause future events, achievements or results to differ materially from those expressed or implied by our forward-looking statements include those discussed herein and in our Annual Report on Form 10-K for the year ended December 31, 2015 in the section entitled “Item 1A. Risk Factors.” We do not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.
** Quarterly supplemental financial and operating **
** information will be available by clicking here **
** Full earnings release **
** with tables and data can be found here **
CONTACT AT THE COMPANY
Robert McCadden
EVP & CFO
(215) 875-0735
Heather Crowell
SVP, Corporate Communications and Investor Relations
(215) 454-1241
heather.crowell@preit.com